Assess your understanding of key monetization metrics including Average Revenue Per User (ARPU), Lifetime Value (LTV), and conversion rates. This quiz covers definitions, calculations, and real-world scenarios, helping you strengthen your mastery of these vital terms used in finance, apps, and online businesses.
What does Average Revenue Per User (ARPU) measure in a digital subscription business over a month?
Explanation: The correct answer is the average amount of money earned from each user in a specific time period, which ARPU directly measures. The total number of active users does not reflect revenue per user and thus is incorrect. The percentage of daily visitors relates to engagement, not revenue. Lifetime value focuses on total earnings from a user over their entire relationship, which is a different concept from ARPU.
If a website receives 10,000 visitors in a month and 500 of them make a purchase, what is the conversion rate?
Explanation: A conversion rate is calculated by dividing the number of conversions by the number of visitors and multiplying by 100, so 500 divided by 10,000 equals 0.05 or 5%. Fifty percent and twenty percent are much higher than calculated, and 0.5% is too low. The correct rate is therefore 5%.
How would you generally calculate the Lifetime Value (LTV) of a customer in a subscription business with a $10 monthly fee and an average customer lifespan of 8 months?
Explanation: The LTV is calculated by multiplying the monthly income per customer ($10) by the average lifespan in months (8), resulting in $80. $18 and $8 are not relevant to the calculation in this scenario and $100 would assume a lifespan of 10 months. $80 is the only option that accurately reflects the values provided.
What is a key difference between ARPU and LTV when analyzing user revenue?
Explanation: ARPU provides a snapshot of average revenue earned per user within a set period, whereas LTV projects total expected revenue throughout a user's entire relationship. LTV can include both paying and non-paying users, depending on the calculation. Neither ARPU nor LTV inherently measures profit margins, and LTV is not always lower than ARPU; it is often much higher. Only the correct option accurately describes the distinction.
Which action is most likely to increase both LTV and ARPU for a mobile app?
Explanation: Promoting premium upgrades with in-app offers leads to higher average revenue per user and keeps engaged users spending, thus raising both ARPU and LTV. Reducing loading times may improve user satisfaction but doesn't directly affect revenue. Minimizing price could reduce ARPU and potentially LTV. Limiting the app to one language may decrease the user base and revenue. The most directly beneficial action is incentivizing premium upgrades.